CHICAGO, Sept 2 (Reuters) - The U.S. cash market for soybeans and soymeal is on fire this week as domestic processors and exporters fight over the last scraps of the 2008 U.S. soybean harvest.The fireworks won't end until the 2009 harvest expands, but when that happens, market watchers expect prices to fall sharply.

"They are battling load by load right now, (to see) who wants it the most," said Diana Klemme, grain merchandiser and vice president of Grain Service Corp in Atlanta.

Processors in the heart of the Midwest soy belt have grown so desperate for soybeans to crush that they are paying to transport some of the early harvest from the Mississippi River Delta northward to Illinois -- a modern-day version of selling coal to Newcastle. The Illinois crop is still a few weeks from reaching maturity.

"I know for a fact that some of those Arkansas beans are being loaded on rail and going north. They are going up to Decatur (Illinois)," Klemme said.

The U.S. soybean stockpile was projected to dwindle to 110 million bushels, a 32-year low, as of Sept. 1 [If you believe USDA estimates]. Voracious demand from China squeezed old-crop supplies, and a drought slashed production in Argentina, the world's No. 3 exporter.

That 110 million bushels may have to stretch for several weeks while the Midwest crop matures. Typically, the United States crushes roughly 140 million bushels each month and sells another 100 million bushels for export.As exporters scramble to meet China's appetite for soy, domestic processors must pay huge premiums to pull soybeans out of the export pipeline. [This is a preview of what is too come in all other agricultural commodities. Remember, famine is about purchasing power]

Some Midwest crushers this week were bidding $2 to $2.45 a bushel over the value of the Chicago Board of Trade November futures contract. The contract SX9> slid on Wednesday, closing at $9.51, bringing the per-bushel cash price close to $12."CHICKENS HAVE GOT TO EAT"The processors crush soybeans into soyoil for the food sector and soybean meal, a high-protein ingredient in animal feed. Instead of paying up, some have opted to simply close their plants until harvest.

"Bean inventories are so tight that a lot of these crushers are talking about 'I have no meal,' or 'I'm just going to shut down for two weeks until new-crop beans are available,'" said Roy Huckabay, a grains analyst with the Linn Group in Chicago.

Most of their customers, including feedmakers and poultry producers, have covered their immediate needs for soybean meal. But a few end-users are caught short, creating small pockets of very strong demand.[End users today have no inventory in all commodities. For end users who absolutely need a commodities (to feed chickens for example), this means going out and buying on the cash market at a big premium to the nearest futures. For users forced to turn to cash market, futures failed as hedge against rising commodity prices. As stories about this spread (soybean users, sugar users, etc), all end users are going to try to build their physical inventory. This will be the equivalent of a run on the bank for futures markets: everyone trying to redeem their futures contracts at the same time. It will end in a all-out deflationary panic when defaults/backwardation spreads across futures market.]

"Chickens have got to eat," said one eastern cash soymeal broker.A spike in soybean and meal prices is not uncommon for this time of year as old-crop supplies run low just before harvest.

The situation is compounded this year by expectations for a late harvest, given the immaturity of the 2009 soybean crop after planting delays and a cool summer. That puts the focus on the early harvest in the Delta, much of which is typically earmarked for export out of the U.S. Gulf."You've got people in the Delta spraying beans with defoliant to get them to mature faster," [This is sad] Huckabay said.As of Sunday, the soybean harvest was 4 percent complete in Mississippi and 1 percent complete in Arkansas.

PRICE COLLAPSE LOOMS [Bullshit]Despite the strength of the current market, observers said prices could easily plunge as the Midwest soybean harvest finally gets rolling in late September or early October.[Prices will fall slightly for a few weeks following harvest, but will soon surge to new highs in November/December]
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Barring an early freeze that could cut yields, U.S. farmers are expected to bring in a bumper crop. The U.S. Department of Agriculture has projected U.S. soybean production at 3.199 billion bushels, an all-time high.

Export buyers and crushers may find themselves awash in soybeans, triggering a collapse in the cash market.

"When it breaks," the eastern soymeal broker said, "it's going to be swift and violent."[Non-sense. Prices may fall 10 to 20 percent after harvest, then, within a month or two, soybean prices will hit new hit as global shortage grows far worse]

It's crunch time for soybeans — if only processors could find any to crunch.

The protein-rich bean, in huge demand around the world for foods from edible oil and tofu to feedstocks for both animals and biodiesel plants, is in the grip of a supply scare. [as was predicted on this blog...]

The United States, the single-largest grower and exporter of soy, is forecast to produce a record-large crop of 3.2 billion bushels this year[USDA forcast are BS this year. The US will have a good harvest, but I doubt it will be record breaking]. Harvest starts in the Midwest grain belt in a few weeks.

So why did Chicago Board of Trade soybeans of September delivery reached a two-week high of $11.64-3/4 a bushel on Friday? [Because USDA estimates are BS? Demand from China? Poor production worldwide?]Because while supply will be big [small], demand — nervous demand — will be bigger, at least for a while.

"If soybeans are ever going to be tight, it's right now — it's this week, it's next week, into the new crop," said Dan Cekander, a grain market analyst at brokerage Newedge USA.

The U.S. soybean marketing year ends on Aug. 31, with the opening of the traditional harvest month of September. On that date, U.S. soybean stocks-on-hand are expected to have fallen to a 32-year low — with more declines seen before harvest can replenish supplies for processors and exporters."The other problem you have exacerbating the situation is the new-crop maturity is delayed, so the harvest is going to be delayed. So it's not like you can all of a sudden turn on a lot of new-crop supplies — just because the old-crop marketing year ended," Cekander told Reuters TV on Friday.

Active soy harvest in the central Midwest — Illinois and Iowa alone produce a third of all U.S. soybeans — is not expected until the third or fourth week in September.

So U.S. cash soybean prices soared last week as exporters and processors kept battling over dwindling old-crop supplies.Exporters at New Orleans were bidding as much as $2.10 per bushel over CBOT November futures prices to draw in soybeans on Friday, up from a premium of $1.35 over a week earlier.

Processors tried to compete but many continued to be forced to take extended "down time" for lack of bean supplies to crush into soybean meal, a popular high-protein livestock feed, and oil. Some Midwest brokers were quoting prices of up to $100 per ton above CBOT September futures for loaded railcars.

"What that tells you is that there are end users right now paying prices as high as they paid at the very height of the bull market a year ago in 2008? for soymeal, Cekander said.

Driving the strength in prices continues to be China's torrid buying. But a drop in temperatures this week in the Midwest also sent a shiver through traders fearing an early frost that might cut yields in soybeans.

CBOT prices fell on Monday amid outlooks for milder U.S. crop weather through the middle of September. Also weighing on prices were worries that China may unilaterally terminate derivative contracts with some foreign banks that provide over-the-counter commodity hedgers services.

Intense Soybean Backwardation is Proof of Shortage

My reaction: The US cash market for soybeans is on fire this week as domestic processors and exporters fight over the last scraps of the 2008 US soybean harvest.

1) There are end users right now paying prices as high as they paid at the very height of the bull market a year ago in 2008.

2) Bean inventories are so tight that a lot of crushers 'have no meal,' or 'just going to shut down for two weeks until new-crop beans are available.'

3) A few end-users are caught short, creating small pockets of very strong demand.

4) Driving the strength in prices continues to be China's torrid buying.

2) Midwest crushers last week were bidding $2 to $2.45 a bushel over the value of the Chicago Board of Trade November futures contracts. (that is a 20 to 25 percent premium)

3) "You've got people in the Delta spraying beans with defoliant to get them to mature faster,"

4) Processors in the heart of the Midwest soy belt have grown so desperate for soybeans to crush that they are paying to transport some of the early harvest from the Mississippi River Delta northward to Illinois.

Preview of the coming deflationary panic

End users today have no inventory in all commodities. For end users who absolutely need a commodities (to feed chickens for example), this means going out and buying on the cash market at a big premium to the nearest futures. For users forced to turn to cash market, futures failed as hedge against rising commodity prices. As stories about this spread (soybean users, sugar users, etc), all end users are going to try to build their physical inventory. This will be the equivalent of a run on the bank for futures markets: everyone trying to
redeem their futures contracts at the same time. It will end in an all-out deflationary panic when defaults/backwardation spreads across the entire futures market.

"Chickens have got to eat,"Exporters VS processors

A lot of deflationist (people who expect inflation to be low for years) believe prices can't go up because US wages and employement are contracting. The battle between exporters and processors over dwindling old-crop supplies of soybeans shows where inflation will come from. Strong exports will shrink US commodity supplies so much that prices will rise despite weak US demand. The weakening dollar will make this worse by encouraging exports.

The Midwest soybean harvest

Prices will fall when Midwest soybean harvest gets rolling in late September or early October. However, prices will only fall 10 to 20 percent (not a "collapse") and the shortage will be back in full force by the end of November.

The reasons that soybeans will surge to new highs in November/December are:

1) Chinese demand for soybean will remain strong (Chinese prices are roughly $5/bu higher than the price in Chicago, making imports a no brainer)

2) USDA is overestimating production. The US soybean harvest will be smaller than official numbers suggest.

3) Pent up demand. All these US soybean crushers who have shutdown production waiting for new crop will be crushing far more soybeans than normal to make up for lost time.

4) New crop of soybeans is already being rapidly consumed: early harvest from the Mississippi River Delta is being shipped to desperate Midwest crushers.

The surge of exports of soybeans could also help the stem the dollar briefly.

From my perspective, having prices fall slightly at the beginning of October would be perfect, as it will provide a last, perfect window to purchase of agricultural land at a good price. As most of my readers know, I am setting up a fund to invest in Russian agriculture (update on this shortly).

There's more to it than the eye reads over here. Yes, agricutural commodities WILL go up in price. But that will lead to a food deleveraging process as well. Now a lot of soybeans are used to feed animals. Cows, pigs and chicken.

When food prices continue to go up then meat will go up in price as well. Because the consumer won't be able to go deeper into debt in order to buy meat, they will stop buying meat. And that's actually a GOOD thing because it takes 10 pounds of grains to produce a pound of beef, it takes 7 pounds of grains to produce a pound of pork and it takes 3 pounds of grains to produce one pound of chicken-meat. In that way feeding livestock with precious grains/soybeans is in fact a waste of good grains and soybeans.

Food-deleveraging is in fact good because in that way (much) more grains/soybeans will be available for human consumption.In the future this is bound to reduce (somewhat) the impact of rising food prices. But it won't mitigate it.

Moreover, I believe the China only can reduce the impact of rising foodprices (i.e. more social unrest), the chinese government - IMO - can not completely mitigate that impact due to the deeprooted corruption in China. And a famine will increase the corruption.

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